[Opinion] Non-Discrimination and Residential Status Under the Indian Tax Laws

Alok Goenka & Aakash Agrawal – [2025] 179 taxmann.com 525 (Article)

1. Introduction – Non-Discrimination Article in Tax Treaties

Section 90(1) of the Income-tax Act, 1961 (“the Act”) empowers the Central Government to enter into Double Taxation Avoidance Agreements (DTAAs) with other countries, which may include provisions relating to non-discrimination. The non-discrimination article is a standard feature in the DTAAs entered into by India with other Countries.

The purpose of the non-discrimination article is to ensure that nationals or residents of one contracting state (say, US) are not subjected to taxation or any requirement connected therewith in the other contracting state (say, India) which is more burdensome than the taxation and connected requirements to which nationals or residents of that other state (India) in the same circumstances are or may be subjected. In other words, the non-discrimination article aims to prevent nationals or residents of one contracting state (say, US) from facing taxation or connected requirements that are more burdensome than those applicable to nationals or residents of the other contracting state (say, India) in similar circumstances.

Commentaries and judicial precedents have discussed non-discrimination challenges in contexts where domestic rules impose procedural or substantive differences on non-residents or on payers dealing with non-residents (for example, disallowances linked to withholding on payments to non-residents).

2. Residential Status under Indian Tax Laws

Residential status for individuals under section 6 of the Act turns principally on physical presence thresholds and certain special rules for Indian citizens and persons of Indian origin. Of particular relevance is Explanation 1(a) to section 6(1)(c) which provides a higher 182-day test for an Indian citizen who leaves India for the purpose of employment outside India (as against the 60-day test that is otherwise applicable). Such a legislative concession is, by its terms, nationality-specific.

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